tv Politics Public Policy Today CSPAN April 15, 2015 11:00am-1:01pm EDT
commissioner is, which is why i'm here. in other words, i've spent -- met every two weeks for the last 15 months with the i.t. people program office the business people working toward the implementation of the development of the systems, implementation of them making sure the filing season got started. i'm ultimately responsible. >> and it's your judgment the irs is up to the task of administering all new aca authorities? >> filing season's shown we've done a remarkable job in the face of both the challenges getting them into we have a very -- what i call a model t. with a great sound system and gps system and new engine but it's got applications running for 60 years pull that off, i am delighted. you could have made a lot of money betting on that 15 months ago. i think we're up to. i thought for a year about it, we do statutory mandates. we'll always have the highest priority whatever statutes you pass but when resources are
cuts, it's tax enforcement taxpayer service improvement of the i.t. systems have to be put on hold. in terms of the implement ache of the affordable care act, i couldn't be more pleased with what the employees of the irs have been able to do. >> thank you commissioner. >> thank you, senator sasse. let me admit back the envelope calculations are dangerous my logic was in error. really the extrapolation 172 times 2, would be 344 in the second year and 430. it's not -- i want to correct the record. i was wrong. the -- so really looks like the minimum penalty will be the maximum penalty if we extrapolate it. we're not talking $3,000. we're talking 325, 695 is average. i want to correct that. senator mccaskill. >> appreciate your staff's input because i couldn't do that on my own. >> it was me. it seemed, man, that's why -- i started going through that logic. this is unbelievable. and it was unbelievable. i was wrong.
>> 435 sounds a lot better. >> sorry. commissioner, you know, i get -- everybody is offended at the notion -- i was offended -- everybody's offended regardless of party or ideology of the notion the irs would target groups based on their beliefs in this country. so i understand the outrage. i understand the need to hold people accountable. but i would like you to explain that when we vent that frustration, by cutting your agency, who exactly are we punishing? >> well, as other people have noted, when you punish the irs by cutting its budget ultimately you're punishing taxpayers because you limit our ability to provide service to them that our employees want to provide. people that care most about it are people working in the call centers and assistant centers whose satisfaction comes from helping people and they don't feel they've got the resources
to do that. >> budget cut by 18% since this scandal came up. what is the call wait for a taxpayer who has a problem? what is the average amount of time they have to wait on the phone because you don't have enough personnel to answer the phones? >> at this point when you get through, if you get through, it's on average would have taken you 28 to 30 minutes. >> and what percentage of the phone calls can you even answer at this point after these draconian budget cuts supposedly were punishing you but turn out they're punishing my constituents who can't talk to anybody because you've had to cut so many people? >> about 60% of the calls this year are not going through. and that increases exacerbates the problem. if you don't get through, we've had over 6 million -- the phone industry calls them courtesy disconnects, when the system gets overloaded and you're going to be it too long you get
disconnected. so you aggravate the problem. what happens, people have to call back. on average, a lot of people are calling two, three four times just to get into that cue to wait for the half hour. >> and scams, we're going to have a hearing later today in the aging committee about the scam going on in the country where people are calling people and claiming to be the irs and basically stealing money from them through coercive efforts and misrepresentations on the phone. when you're able to go after the criminals, what is the return on investment for every dollar that you're given to go after the criminals? and i saw those criminals firsthand as a prosecutor that are using the irs and the tax code and cheating all of us who you know, all of the people in america who pay their taxes what is the return on investment for every dollar you get? what do you return to the treasury in terms of your
ability to go after the criminals? >> well, enforcement alone the return is over ten times the amount. as a general matter, when you give us a dollar you get $4 to $6 back. we are the only agency in the government, if you give us money, we promise to give you more back. >> let me make sure i understand what -- make the point because this sometimes -- and i don't want to get to a -- maybe i will get to an aggressively partisan place here -- but when you estimate your taxes, you're deciding what you're going to make and what you're going to owe the government and then you decide what's going to be withheld withheld. and if you're right then if you're perfect then it's even you don't owe anything, you don't get anything back. you underestimate your income you might owe more. if over -- you get less, if yo
you overestimate you might have to pay more. this is something the taxpayer has to do every year. >> that's correct. >> what we're doing with the aca is exactly the same thing? the individual has to estimate whether or not they are entitled to get this amount of money for their insurance premium or if in fact, they're entitled to that amount and if they estimate wrong, they're either going to get money back or they're going to owe money. >> that's correct. one of our goals to try to educate the public, we've been doing that a year, to understand that. >> they're going to get better and better. >> they will. after the first year, everybody then pays even closer attention and understands that it's not a free good. >> okay. >> when you get a premium, advanced payment it ultimately has to be reconciled with the reality of your income. >> finally calling it a personal responsibility tax, i've got a couple of minutes and i'm going to take them, a 32-year-old man in america has enough money to either buy a new
harley or health insurance. and under the umbrella of freedom he decides, i want a new harley. he goes out and puts that harley on the pavement and life flighted to the nearest hospital where in america we don't say to him, you know what, you decided to buy the harley we're going to let you die. instead, we take him in the hospital, and sometimes give him millions of dollars of health care. he goes bankrupt. the hospital has uninsured care. now there is no magic fairy, that i'm aware of, i don't think there's one at irs that comes into the hospital and pays the bill. so what happens when that happens, when that guy decided to buy the harley instead of the health insurance, the hospital calls the insurance company, says, we're going to have to charge you more for labor and delivery, we're going to have to charge you more for a knee replacement, we're going to have to charge you more for an angioplasty.
and then that insurance company calls the small business down the road and says you know what? i'm going to have to raise your premiums. and those premiums have been going up by double digits every year for years, prior to this reform. now, the question we have here is one of personal responsibility. and i am lectured about personal responsibility from some of my friendsen the other side of the aisle constantly. the question is do we owe all of us who pay insurance, should we pay a higher premium because he got to get a harley? or should he have personal responsibility to be able to cover his medical bills? and that's what really is the essence of this question. we say you have to have insurance when you are driving a car because you might in fact harm someone else. well, when you go into the hospital with uninsured care you are passing those costs on to people who have taken personal responsibility. so i get so tired of this notion that somehow this is the big arm
of government instead of the notion that it's time in america we acknowledge that personal responsibility in the health care sector is just as important as personal responsibility in any other sector. i feel better. thank you, mr. chairman. >> thank you senator mckas cal. >> can i just say something? >> sure. >> i'm tom carper and i approve that message. >> senator? >> thank you mr. chairman. i'd like to state for the record, i do ride a harley, i have insurance, and i wear personal protective gear. so yes, thank you very much. i am personally responsible. >> did you all work this out beforehand? >> no, we did not. we did not. we did not. fortunately i don't make that choice. i know what i can afford and do so accordingly. anyway little bit more, i note senator sasse brought up good discussion about king v. burwell where your role will be once
that decision is made if it goes the way i believe it should go, then we will have subsidies that have gone to states and to individuals that shouldn't have gone to those individuals. but what do we do? maybe you've thought about this in those hybrid situations, there's a handful of states of which eye i. is one, it is a hybrid exchange. it's neither state nor federal. it is a combination of both. have you thought through that? and what role the irs might be playing, commissioner? >> no, we haven't. basically, there's no way for us -- we don't spend any time thinking about it -- trying to predict what the court will hold and what it will decide in terms of how to parse through all of this and what the responsibilities are of states federal government, the congress. and much like potential tax extenders, we basically, as i say, play the hand we're dealt.
the court will make a decision and then we will respond. the policy issues, back to the earlier questions, about what the implications are, beyond tax administration will be decisions made by the treasury department and the administration. but at this point we have enough challenges running the filing season and the program as it is that's what we're focused on. >> okay. i do appreciate that. i hope that once the decision is made, we can all jump on that together and figure out how we're going to handle that situation. so i do appreciate that. since september of 2014, health and human services has dropped over 300,000 individuals from obamacare because those individuals have failed to document their legal residency. so we don't know what their status is. many of those were enroll under the law for over a year. 300,000 individuals.
and during that time many of them did receive premium assistance tax credits and cost sharing subsidies for which they are not entitled. they can't prove their residency, they're not entitled to those. so underthe administration's current policies if an individual or family's unable to prove his or her citizenship or lawfully present status hhs provides coverage and taxpayer funded subsidies under the affordable care act before the individual's legal status can be verified by any government agencies agencies. so if citizenship were lawfully present status is not verified or cannot be verified, then those individuals are dropped. again 300,000 individuals dropped from obama care. because many of those that part of the 300,000, if they are illegal immigrants, they're not necessarily filing tax returns. and so i understand that it would be difficult for the irs
to try to recoup improper payments or credits or subsidies because they won't be subject to the reconciliation process when they file tax returns, because they don't file tax returns. so, how, as an irs, are you able to handle that situation? what is the plan moving forward for those folks that were receiving credits or subsidies? >> those qualifications were made by cms and hhs, which runs medicare and medicaid and has experience on recouping improper payments or payments made in error. so this is an area where they will be responsible for doing that. >> that won't even be run through the irs? >> no. in other words if they weren't -- again as you say if they weren't filing, they will -- you know if the premiums have been paid on their behalf at this point the idea is that cms will pursue those to
the extent that they pursue any other payments that they make you know, that turn out to be improper. >> okay. i can see this is going to be a very difficult situation with so many different entities involved with subsidies, tax credits, one agency not knowing how another agency's going to handle it. >> no we work together on that. there's not a gap. this has been, as somebody noted earlier, an effort that's not totally unique but for us, we spend a lot of time with cms and a very good working relationship with them, we spend a lot of conversation with treasury department, as i note we're a bureau, but the policy issues are regularly reviewed by hhs and treasury together. we chime in in terms of how it's going to affect tax administration. but i don't think there's any gap in where they are as new issues come up, they obviously have to be resolved but that's
part of an ongoing discussion, the agencies have. >> okay. i do appreciate that. i know it's a difficult situation, you've been thrown into this. i appreciate your service and thank you for coming today to testify. thank you. >> thank you. >> thank you. senator ayotte? >> thank you, chairman. thank you, commissioner, for being here. so, i wanted to ask you about a situation that we have been fating in new hampshire, but i don't think new hampshire's unique on this. so i received a number of complaints from my local libraries that they didn't receive the necessary tax forms and instruction booklets. so in new hampshire we happen to have a high percentage of people that actually will file by paper, and historically they've been able to go to their local library and get the tax forms so that they can do their taxes. i wrote to you originally, i believe, in february. >> yes. >> about this issue.
and the first response i got back, one of the primary reasons you said that these forms weren't being provided to people at their libraries in new hampshire, was that the irs had budget was cut. but reality is is that on taxpayers services congressional located the same amount of money. so why is that the irs is unable to provide the same level of customer service this year? because it's not just this library issue. you know, for us in new hampshire to have to go through the run around that we did to get our libraries the base sick tax forms so people could file their taxes i mean, it just was kind of unbelievable to me when my staff told me all of the runaround we were going through. and so can you help me understand why -- why this is happening? what troubles me even more is
that the national taxpayer advocate recently testified before the senate appropriations committee that this year taxpayers are receiving the worst levels of taxpayer service since at least 2001, and the statistics are staggering in terms of 40% of the call the irs is receiving from taxpayers are not being answered or responded to in any way. >> right. the answer to that is the appropriation, we got an appropriation in buckets for enforcement, for operations which is taxpayer service and information technology i.g., off on the side, we also have fees that go through our -- in part of the operating budget that the appropriators are aware of. historically, we've never been fully funded for taxpayer service. the amount of money provided has been then supplemented by on average about $150 million out of the various user fees that we
charge. because in both '14 and '15, we were zeroed out in funding for the affordable care act, we asked for $300 million each year, just for i.t., and the congress provided us zero. the only way we could do it was to move money wherever it was. while the bass appropriation for taxpayers service is the same we had to make $100 million out of our user fee allocation to put it into technology to implement the act weep have a significantly amount of money available for taxpayer service than we've had before. the appropriators understand that, we go through that with them regularly. we are as concerned about you are as the low level. i've visited 37 cities, talked with in town halls and otherwise 13,000 irs employees. and one of the common themes is not that they're overworked, one of the common themes is, they want to help taxpayers. they get satisfaction out of answering questions. one of the concerns they had when we told them they could
only simple questions not complicated questions because that lets the queue get longer. we told the congress last year, appropriators, if our budget was flat, let alone cut by $350 million, we expected the level of service would drop to 53%. when we got cut by an additional $350 million we had no choice because we have to implement the statutory mandates we have to run the filing season, we collect over $3 trillion for the government in the order run of the filing season, so we can't aforward not to have that to work. the only places that get cut enforcement, taxpayer service and improvements in our information technology. with regard to the forms, first of all, as i hope i explained, i thought when i read the letter and signed it to you and talked to people our experience has been 85% of the forms we've been sending out don't get used. we've been providing a lot of forms for landfills. for the library we provide them the basic forms, not schedules and others but provided them a
format that would allow them to make copies of any form they wanted. they could download and make other copies of those. anybody could call us, we have a special line for documents and ask for documents, we'd mail them to you. there was a problem with the extenders and development of the form we could get them up online, you could download them if you called us it would take longer to get through the formal process. we tried for taxpayers to give them alternatives. the library concern, which i understand, was printing documents making copy is night free good. whether it's 10 cents or 15 cents a copy with lidgemited budgets libraries are strained for than for constituents that could go online, download them themselves, some -- >> the problem is people going to libraries don't have access. >> and those people we tried to give visibility to it could call a special line and we would mail them the form. >> i literally had to send -- we had to send my staff repeatedly
over to get forms for people in new hampshire. you know we were only able to get ten at a time. it was a little crazy. let me point out that, from your testimony, the one thing that people need to understand is, you had to take money in the taxpayer services line to fund the implementation of the affordable care act essentially is what happened here. >> yes. >> we flat funded you the same on the taxpayer services and you took the money to implement obamacare. >> the money you gave us for taxpayer services spent on taxpayer services we put $50 million of user fees into it. it's $100 million we had to put moo the statutory mandate, and we have to do statutory mandates. we don't have a choice -- >> the g.a.o. found irs used 12.1 million appropriated for taxpayer services to implement the affordable care act. >> yes. we have no choice. if you pass an ability, the congress passed, as i've said ionically ionically, three days after our budget cut by $350 million the
congress pass the able act, you have until june 1st to do that and the professional services organization act will do that because you've told us to do it. the only way we do that we have to find money somewhere, we have to take it where we have discretion. >> we're taking it from core functions to do this. >> that's right. >> i wanted to follow up on an issue that someone may have already asked you buff i wanted to follow up, and that's the incorrect 1095-a form stoent 800,000 individuals who enrolled in the health insurance for the federal exchange. do you know how many taxpayers in new hampshire received an incorrect 1095-a reform in. >> i do not. those forms are provided and designed and filled out by cms. they would be the ones if anybody knows they would know. >> and do you think that the people who waited a little longer, as i understand they're being treated differently and still on the hook for paying that if they owe a larger premium that they, as i
understand, there may be a distinction between those depending when they filed and how they're treated how are the people in the country that were misled, in terms of what they thought they were going to be receiving, not receive, having to pay, how are you going to treat the individuals? what are we going to do with the lost revenue? zblf the 800,000, the estimate was 50,000 filed 750,000 were in the same pool. and the 50,000 could file amendment if they wanted to. so it's not a distinction. terms of being misled, we've had a long -- i think informative discussion, that -- i think after the transition of the first year people will understand it better when you register and apply for a insurance coverage, you make an estimate of what your income is going to be for the year of going forward, the way we all make estimates when we file our estimated payments and withholding. you make that judgment. we then provide income verification about what your
last tax return filings were so the marketplace can determine whether in fact you've got an accurate estimate going forward. and on that basis determination is made first you know by working it through what the premium for your insurance is and then a calculation's made how much of the premium will be paid on your behalf to the insurance company in an advanced payment. one of the things that we have tried to make clear from your standpoint we want people to make sure if they had a change in circumstance, if they had a different estimate they'd need to go back to the marketplace. a lot of people actually i think, went through, and assumed once they got the premium payment paid to the insurance company that somehow it was never going to get reconciled most people understood it had to be reconciled but one way or the other they not understood that. we think going into next year, everybody will understand when you make an estimate of your income and your family circumstances, if your income goes up then you're entitled to less support for your insurance
payment that goes forward. you still have the same insurance policy it's a question of how much do you pay, how much does the government pay. if the amount of income goes up you're eligible for less. you let the marketplace know that immediately, it will adjust the advanced payment immediately and you'll have no change or reconciliation at the end of the year. so, we spent a lot of time cms spent a lot of time over the last year trying to get people to understand as 2014 unrolled that if your estimate was wrong or changed you needed to get back to the marketplace a number of people did, that would mean you'd get a 1095-a for the part of the year that you were under one coverage and another 1095-a when premium changed so at the end you'd know what your premiums were. we think it's going to get better in the second year because everybody will have been through it once. and will understand that you're making an estimate of your income, you have to be careful that that's as close as to what reality is going to be. if it changes over the course of
the year, you need to get back to the marketplace. >> thank you. senator langford? >> thank you, commissioner, good to see you again. thanks for the work you're trying to do for the american people and all that's going on. you've walked into the middle of a lot of chaos with laws that are we all have some frustration with. i appreciate what you're trying to do. we've talked before about the eitc and the identity theft issues. i want to get a general sense of time line. putting together working groups, how do we get on top of this, a 22% estimated fraud rate somewhere around $13 billion to $16 billion in loss in the one program and trying to be able to manage that. the challenge has been this is a high priority issue how to get on top of this. you've come in the last two years, walking to the middle of all of this, what's the plan to get on top of this $13 billion to $16 billion of loss? >> it's a major challenge for us. i've been concerned about it since i started when i started
the challenges were to implement the back end of the affordable care act front end of fatka, deal with extends, deal with the filing season overall identity theft. we made progress, good progress, in some areas. progress in all of those areas except eitc. if you look back over it over the last ten years, the percentage of improper payments and the dollar volume of those have been pretty much within a range and not changing. >> how do we get on top of that? what's the plan? >> the plan is didn't put together a working group of everybody who knew anything about this to say we can't keep doing the same thing, though we've tried a lot of stuff can't keep doing it expecting it's going magically get better. we've asked for support from the congress, we neat w-2s earlier to validate what people are asking for. we need to have correctible error authority. we see in the returns when there are errors. two people claimed the same
dependent, you've said you've got four our database says you are two we can't make that correction without sending a letter and entering into a formal negotiation or audit or exam, and there's a limit to what we can do. we do about last year about 450,000 of those exams. but we have 27 million applicants. 20%, 4 million, 5 million, are getting improper payment, we're never able to audit our way out of the problem with resources. if we had correctible error authority, we could make that correction, advise the taxpayer, the taxpayer would have the right to say no no the person who claimed the child is wrong or i've got three kids as opposed to one, you'd always have the ability to make that clear but we'd be able to make those corrections directly. as we talked earlier, over 50% of eitc returns are filed by tax preparers. most of them know what they're doing, try to do the best they can. it's a complicated statute if somebody wanted to simplify
we'd be happy to support that. but it's complicated so for untrained preparer it's very difficult to work through. and so they're making honest mistakes and as i say, there are crooks or advertising come with us, we know how to get you a good refund. we've tried to warn taxpayers if your preparer says sign a blank return, i'll take care of it for you, you better get another return preparer a, you may never see the refund b, the refund may have nothing to do with your reality. if we can get w-2s earlier had correctible error authority, and if we had minimum requirements and qualifications, training for tax preparers we would we think the evidence is over the last ten years we could make a dent in the problem. we're never going to get it to zero. to me i've told people you can't keep running the system this way. it looks either like we don't know it's a problem or we don't care about it or we can't do anything about it. >> i would say that's a prime aspect of the committee determine where we're stuck, let
us know what we need to do get us unstuck on that one. you articulated three different issues you need congress to help with w-2 issue, correctible error authority and simplify the statute eitc so there's less gray area. basically more black and white, who gets it who doesn't, how it gets applied is that correct? >> you've got four. w-2s earlier, correctible error authority, minimum requirements, qualifications for preparers and if we could simplify the statute it would be helpful. >> all right. this again is something you're trying to manage to the middle of all of the transition of obamacare. september 2014 hhs dropped 300,000 people saying they didn't have the correct dock residency status. what is the plan to recoup is there a way to recoup? is there a loss 300,000 people
that received a subsidy that hhs came later back to and said no, they're not eligible how that is working out? >> as you can imagine a complicated situation. what they got was advances payments of the premium tax credit. they never got to the tax credit form. they basically i the government made an advanced payment to the insurance companies on their behalf. and so as i general matter, the policy's been that hhs cms, who deal with medicare and medicaid payments that on sometimes are made improperly, about retrieving those and basic policy is that cms and hhs are responsible for when the payments are made on the basis of improper identification at that point recouping those collecting them again is up to them. >> so that is not up to you, that's up to hhs? >> right. >> we have 300,000 people that received advance payment that don't have citizenship or dock
men taking documentation but are receiving the payment but that's over there. >> yes. >> another issue on this, the law itself with the affordable care act the law prohibits employers from reimbursing or otherwise providing financial support to employers -- sorry, employees to help them pay for individually purchased plan for the smaller businesses and individuals. so you've got someone says they're going to go out on to the general market, the employer is going to provide them some sort of tax-free amount. in the past employers, especially small businesses, would say, okay, i can't afford to do a policy but i'll try to find you some way to help you do that. my understanding is that's not legal under the affordable care act. are you aware of what the tax policy is and the tax implications? >> my understanding the tax policy, it's not a policy the irs sets, it's a policy set by the treasury department in response to the statutory language. >> would the irs are to carry out the penalty part of that though? back for the employer,
especially, my understanding is the employer gets the penalty. >> once somebody decided either in the statute or policy under the statute, what the policy is, the tax administration is our responsibility. to the extent that once rules are set, we are responsible for administering them. so the text the penalties, the tax payments, would be our responsibility. >> at this point, there's a consequence that could come down, someone trying to help someone pay for their premiums in the general market rather than providing an individual coverage? >> right. the treasury department, provided guidance in that regard. so that point has been made. >> mr. chairman, can i make one quick comment as well? >> sure. >> kaiser family foundation's done a tremendous amount of research and a good job of getting background. they listed in research 4% of households receive the correct obamacare subsidy. that's not your responsibility to chase that down. but that becomes a big issue long-term on managing and affects a lot of people as they go through their tax planning and preparation. it's one of the aspects that has to be corrected.
if we have 4% of these folks, according to the kaiser family foundation that are receiving the correct subsidy amount up front to know what they're doing with we have a major problem. otherwise they're trying to clean up consequences of it. >> i would simply note that i'm not sure we have a higher percentage of people estimating their income than they're withholding. in other words, what you're doing at front end is making an estimate what are you going to earn in the future? that determines the premium, the advanced payment you're entitled to. and so unless you know your job today and know it's -- no income will change, family's not going to change, you're always making an estimate by definition that is never 100%. >> this sets up americans to fail at this point in sets them up to where they have to file multiple forms through the year to update pay? >> no, what happen is what people do with withholding. reason 60% of people get refunds they overestimate and that's what we expect people will do here, they will be careful about estimating their income. they'll not try to make it down
to the last dollar, they'll say i'm going to overestimate my income to make sure the premiums going to the insurance company, i'm entitled to and that means i'll get a bigger refund because when it gets calculated, much like people getting refunds for with holding and estimated tax payments i'll get a refund in april. so it will be, i think that normal taxpayer behavior which is the way they behave generally. >> thank you. i yield back. >> thank you, senator langford. mr. commissioner in probably june of this year, the supreme court is going to be deciding on a irs ruling in the king v. bur well division. has the irs done any planning in case that ruling comes down and is an adverse ruling in terms of your rule making? >> as i said earlier, there are a wide range of possibilities how the court's going to rule in terms of both what it decides and how it decides it wants to
implement, have its ruling implemented. and in light of our challenges just moving forward and next month we have to prepare for the next filing season, there's no way we can adjust the filing season planning, trying to anticipate the various options. much like we do with tax extenders, we basically run on the assumption life will continue to look like it is and then we have to adjust afterwards. >> again, no planning whatsoever, if the supreme court rules the way i believe the law's written, that the subsidies can only be paid through exchanges established by the state, that's going to create real problems for the irs, correct? >> depends how the court rules. >> again, i'm -- i understand that. >> you could -- >> say they follow the law and the way it's written and they say that only subsidies can be paid through those exchanges established by the states. we've got how many states that have federal exchanges how would you handle that in again my question is have you given any thought to that? any planning whatsoever in terms
of that very possible eventuality here? >> no, there will be a set of issues, just as with statutes, there are policy questions about how to implement them. some statutes are passed and then people are given more time to transition. so depending what the court decision is, there will be policy decisions made about how to transition from one point to another. but depending on the decision it could make life much more complicated for everybody. >> you weren't commissioner when that ruling was handed down correct? >> that's correct. >> did you ever look into a research how that ruling was developed? >> no. i have a rule of life, i spent 45 years parachuting into 20 years in the private sector, 20 years in the public sector agencies and organizations under challenge. my rule of life is play the hand you're dealt and move forward. so, that decision was made before i got here. and my job is to administer the agency best we can where we are there you never looked into whether or not the irs was
working hand in glove with the white house, trying to get direction from them how they should rule on that. >> no. we don't work with hand in glove with the white house in anything about these. policy discretions we have are primarily with the treasury department, regulatory process worked with the treasury. i have no idea who talked to whom, how that process and those decisions were made. >> so the irs is also responsible for evaluating exemptions for the individual mandate. how many americans in general or what's the estimate in terms of americans that will qualify for the various exemptions that had been provided for? >> at this point as i say we haven't pulled that data out of return. so i can't give you an answer on that. but the assumption was basically that probably more people would file for exemptions, hardship exceptions,
or that they had coverage for part of the year than people who will pay the shared responsibility payment. it will be you know a number that will actually see and as i say in three, four weeks we'll be able to cumulate all of that data and understand where it is. >> those granted exceptions, that's going to be on an honor system. any way of trying to verify that other than through potential auditing process? >> yes. what we'll do, in all of the matters as we always do when we -- the computer selects returns that have issues, whatever they are when we go into those, we look at everything. so, of the 75% of give or take a little of americans who check boxes saying they have coverage if we have an issue with your return, we'll ask for backup support for the fact that you had coverage because you said you did. so we will track through when somebody says, i had a hardship and it turns out you made a lot of money and we're auditing you
on that basis, it will be noted that what you applied for this exception you don't seem to have qualify for, and then you're subject to in effect penalties and interest and the penalties for purposely understating your income can overtime mount up. getting back to the couple that wrote me the letter and their 11,5050 of subsidy they have to repay, the timing, what point in time, if they're unable to repay it in they were talking about because they don't have the cash on hand you know they don't have the ability to pay other than having to pull money out of their retirement fund, which is pretty high penalty for doing that, correct? if you pull money out of your retirement fund, there's a 10% penalty on that, plus you have to count as income. >> only if you have already retired and you're 59 1/2, you can pull money out of your retirement fund and you pay income tax. >> they're not retired. well they might have been retired. >> if they're over 59 1/2 they don't have that problem, other
than you pay tax. if you're under 59 1/2 there is a penalty. >> somebody in that situation that was working that had to pay that back, they may be paying a penalty. what about the timing of paying the subsidy anyway? >> as i've said, we -- you can go online and if you qualify and in a case like this you probably would, you can do online installment agreement that would allow you to spread payments over time and you can do that online or call us after the filing season, hopefully you'll be able to get through quicker. you can arrange that so you don't have to immediately take draconian steps to pay anything on time if you've got legitimate concerns. sounds like this in this case an installment agreement would be an appropriate response. >> over what time period? >> depends on the situation, but it's over three to five years. >> do they pay interest as well? >> if you -- yes, if you haven't paid on time, there is an
interest charge but no penalty. >> what's the interest payment? >> interest rate goes at the government interest rate which these days very very low. >> okay. that's all i have. senator carper? >> not that i want to encourage people not to pay on time because the interest rate is low. >> nigh dad always used to say, use comment sense when we were little kids use common sense. my mother said, treat other people the way you want to be treated, golden rule. your response to senator jonsson's question explaining how to go online, ask for installment payment pay no penalty but interest at the government's cost of bore rogue which is very low, that seems to be using common sense. also seems to me, first blush, to be treating people the way i'd want to be treated. good for you. when i walked -- i had to walk out, senator johnson, another
committee, i serve on environment public works we focus on nuclear regulatory commission, it's a subcommittee jurisdiction over the nrc. i'm in and out here. i walked in and you were responding to senator james langford's question, what can we do, what do we need to do to be of assistance? i'm a big believer in repetition. this is important. in terms of what we can be doing on this side to be enable you and your folks to be a better job or cost effective job i just want to have you hit it again. >> this is in the context of what can we do what thus far intractable problem of improper payments in the earned income tax credit area. >> you may have answered this question. >> but i'm happy to repeat it. markers say you have to make seven impressions before anybody hears you. this will be two. we need to get w-2s earlier to match up front. it would help us in a lot of
ways not just eitc, but we need correctible error authority, when we can see there's an error, either on a given return or set of returns that we now have to go out and audit and we don't have resources and probably never would want to do it that way, if we can make the correction, send the correction notice to the taxpayer they can always come back and say i really do have three kids instead of one or that other person who claimed the child isn't my fault, i get credit for it. the third point is that we need help because over half of the returns for eitc are by paid preparers, making sure there's a minimum qualifications for people filling out tax returns on behalf of someone else. and then those are three things that are in the green book that have been up on the hill out that big telephone book said these would be very important. the fourth thing would be the statute is very complicated in terms of trying to figure out who is in charge and where the children are and who gets
credit, who had them more than six months and what the relationships respect i think a lot of tax preparers, and low income people, are stymied by that complication. so if somebody wanted to step back and say, it's a great program, it has bipartisan support, it always has had, it's been reputed to be reagan's favorite poverty program if there were a way to make it easier for peep toople to figure out exactly who gets the credit and when, that would be helpful. but the first three are things that can be done now that would immediately give us a significant opportunity to make a dent, significant dent in the issue. if we are given the tools, we should be held accountable for making that improvement. it won't go to zero but it's a situation where i think we can't keep running it, without beginning to make progress and limiting those improper payments. >> all right. maybe one or two other real
quick ones. the -- when you look ahead when you start looking ahead i don't know how long -- how fortunate you'll be our commissioner at the irs. >> i have another 2 1/2 fun filled years. >> that's good. i was tempted to ask you what gives you joy in your work. what gives you joy in your work? >> two things. one is it's an important agency critical to the function of the government. so you know you don't get up on month wondering whether what you're doing is important. the second thing is, i've said it and i don't say it for morale purposes or otherwise, i believe it, it's a wonderful workforce when you -- i talk to 13000 employees across the country and they are dedicated to the mission. we spent a lot of time a lot of their time spent trying to help taxpayers. i said it may take people a while to convince people we're from the irs and here to help you, we spend a lot of time trying to help people, installment agreements. if you're trying to figure out how to pay taxes we want to help you do that.
so, it's been a remarkable experience dealing with employees who have been under a lot of stress, a lot of pressure and attacks. to go talk with them i have 37 cities, i've had lunch with 15 to 20 randomly selected employees in addition to town halls. they are a remarkable group. it give me great satisfaction. and to work with them, and it's a great honor to be the irs commissioner. >> the -- npr a couple years ago, i was listening on my way to the train station and they report at top of the news 7:00 a.m., international survey, by some research international survey asked what is it people most like about their jobs. some people said they like getting paid. some people said they liked having benefits pension, health care you know vacation time. some people say they like folks they work with.
some people said they look the environment in which they worked. most people said they -- what they really liked about their work was the fact that what they're doing was important and they felt they were making progress. how is that? what most people said is the thing they liked about their work what they were doing was important and felt they were making progress. i find that we -- god knows the work that you all are doing at the irs is important, otherwise we wouldn't have -- i think oliver wendell holmes, what did he say, we need taxes to have a civilized society. we'd have a less civilized society, that's for sure. we're not making -- we're not allowing you to make the kind of progress that you ought to be able to make. i think with your leadership and stewardship, and frankly good advice from gao from time to time and others you're making progress but we're not making the kind that you want to make and frankly we want the wait times we hear on the phones and people showing up at offices and waiting and waiting, not having
files, forms available because of us because we changed the tax laws so late in the game. we have got -- we have a job to do here in concert with you so that the people that we serve could feel better about the job that you're doing. and you can as well. thank you so much. >> thank you, senator carper. we always give the witnesses last chance at making closing comment, if there's anything that was on your mind that you wanted to get off of your chest here. happy to let you do that. >> i appreciate. i think it's an very important discussion about a very important subject matter. i think hopefully, it's been helpful to the members of the committee. i think we're on television, my hope is that people watching know, have a better idea about the affordable care act, how it works, effort that we're making to make sure it goes as smoothly as possible for people. the issues i hope, held. for the public to understand those participating in the market places what they should
pay attention to. when circumstances change that they should get back to the marketplace to make sure that their reconciliation at the end of the year is painless totally painless, in fact as it goes. as it goes. but i do take senator carper's point, the irs is important. people ask me why after a year and a half i seem to be energetic and enthusiastic about it. i said again, if you spent 45 years of your life doing turnarounds and dealing with agencies under stress you have to be optimistic and assume it's going to better otherwise it does grind you down. i'm optimistic and i think there are people anxious to be supportive of us. i think we have a responsibility. i've tried to stress that to spend taxpayer dollars carefully. we're given these moneys from people who worked hard to provide them to us and we have to make sure we use the funds well and make sure people understand when there are problems my goal in life would
be nice -- as i said at my confirmation hearingses to have no problems. but 87,000 people, it's the world's most complicated tax code and deal with almost virtually every american and every american family. our goal needs to be and i think we should be held accountable for it, when we have a problem that we find it quickly and fix it quickly and we're transparent about it. taxpayers need to be comfortable and confident. we're spending their money wisely and we're going to treat all of them the same and fairly. we're going to do even with limited resources over a million audits, i don't want individuals thinking i'm getting audited because of something i said or attributed to. there's an issue in the return that caused me to look at it. and if somebody else had that issue we would look at them as well. it's baseically a system that depends upon voluntary compliance because americans are trying to pay the right amount
and do the right thing. for that system to work they have to have confidence in and be comfortable with the fact that tax administration is not a political enterprise, it is in fact designed to treat everybody fairly and make sure that people pay the fair amount and have difficulty with it to work with us to figure out a deal with that. if we can move in that direction, then we will be making progress in the most important way, which is to protect the voluntary tax compliant system of the country. >> the fact of the matter is the agency has lost credibility and credibility needs to be restored. i hope you do everything you can to restore that credibility. appreciate your service and your thoughtful testimony and your forthright answers to our questions. this hearing record will remain open for 15 days until april 30th for the commission of statements for the record. this hearing is adjourned. thank you.
so that wraps up our hearing looking at irs collection of health care penalties. if you missed any of irs commissioner's remarks as he leaves the room we'll have them for you to view online shortly at c-span.org. we have more live public affairs program to tell you about. join us rater today when the u.s. ambassador to the united states samantha power will testify about the 2016 state in foreign separations budget. she may get questions about the decision to remove cuba from the
state sponsored terrorism list. that gets under way at 2:00 p.m. herein on c-span3. a live picture of the flag flying over the u.s. capitol today in commemoration of that day in 1865 that president abraham lincoln died. earlier today we showed you live coverage of an event commemorating the day of his death. it took place across the street from the ford theater here in washington, d.c. peterson house is what it's called and that is the place where the president died. at 8:00 a.m. bells at saint patrick's church here in washington tolled as they did the day he passed away. here's what it looked like this morning. [ bells ]
comcast to learn about the literary life of saint augusti augustine. >> a lot of people said he was out for additional property for the king of spain and colonization attempts and gold, which is very decidedly true. we do know that once ponce de leon came onshore, took on water and wood, this area presents one of the few fresh water springs in the area around 30 degrees 8 minutes and it's also the location of the 1565 first settlement of saint augustine, 42 years before the settlement of jamestown was founded and 55 years before the pilgrims landed on plymouth rock. >> the hotel was built by henry morris and flagler, very little
known outside the state of florida. he was one of the wealthiest men in america. he essentially had been a co-founder of standard oil company with john d. rockefeller. he was a man who always wanted to undertake some great enterprise and as it turned out, florida was it. he realized that he needed to own the railroad between jacksonville and saint augustine to ensure guests could get to his hotel conveniently. clearly the dream was beginning to grow on flagler. he was a man who had big dreams, he was a vision nar. >> watch all of our events from saint augustine saturday at noon and sunday at 2:00 p.m. on c-span3. a live picture from the
heritage foundation this morning as we're expecting remarks shortly from republican senators marco rubio of florida and mike lee of utah. they are expected to discuss their tax policy plan today. again here at the hertage foundation rubio announced his presidential run on monday. we'll get under way here in a few minutes on c-span3.
and the future of medicare from this morning's "washington journal". >> our first guest, jim mcdermott. good morning. >> good morning. >> stories talking about the medicare bill that was passed yesterday. tell us about what it does. what did it mean for doctors under this system? >> well, we put a provision into the law back in 1988 or '98 and tb ineffective in increasing the cost of medicare but we've not been able to admit it and repeal it and replace it with something else. we've been patching it every year for last 12 years. this year we decided let's fix it and take it out. it always had the potential for cutting doctors payments by 12% or 15%. it had gotten to the point where there would have been a 25% cut and that was never going to
happen. so we finally fixed it generally, got tired of putting patches on it and that's what happened. >> fix it generally what do you mean by that? >> we took it out. we took out the sgr, the sustained growth rate. doctor's offices were supposed to grow only a certain amount each year. and of course they grew more than that or didn't and if they grew more than that they were supposed to get a cut in their payments. we said that doesn't work. let's get a new payment schedule. we put a new payment schedule into the law in place in the sgr. that's how we fixed it. >> they did their own estimate saying more money still is going to be needed in the future to keep what's happening currently from happening again. what do you think of the idea you have to revisit down the road and what's the best possible solution to keep the short term effects from happening? >> medicare's problem and health
care's problem generally is going to be how do you control cost. when the president took on the aca, he said we've got two problems, one is access, people to get into the program and then secondly how do we control costs. we are now in the congress going to have to confront the issue of costs because we have got so many possibilities for treatment today that the cost in health care continue to go up. there's no -- unless we're going to say to people, we're not going to replace knees or hips or something like that, which is very draconian is not going to happen. we're going to have to figure out how to do it more efficiently and that's really what the pressure is going to be on the congress and on the medical profession at this point point. >> is the burden to fix that on the medical profession. who bears the most burden trying to fix these issues? >> i think it's jointly. the congress can continue to appropriate money. they can throw money at it forever but they are not going to do that. they are going to put pressure
on with money and the doctors are going to have to put on pressure to be more efficient in order to deliver the same level of care. you don't want to not treat for people for what they have but you want to make sure you do it in the most efficient way, and that is the issue. there's really big issues in all of this. one is the whole question of the last -- the advanced directives and how much time and how much money is spent at a time in people's life when they are not going to get better and how do we let people die in a dignified way, all of those questions have got to be raised in terms of how much money we spend because we're not going to live forever. woody allen said i don't mind talking about death, as long as i'm not there when it happens. and that's really -- we have to talk about death and how we're going to do it and there are a lot of issues that we're facing in this country. >> is that a congressional issue
as well as far as how you face death and how long you do it? >> you may remember when we were putting the accountable care act they had money in there for doctors to consult with patients about how they wanted their life to end. what did they want to have done at the end? and we were paying doctors to spend time doing that. people called that death panels it was an awful public relations thing that was done in my view because doctors need to sit and talk with their patient and say, here's what's the options are. what do you want me to do if this is what happens? and that takes time. that's not an easy discussion to have with someone. i did a ted talk on this whole issue because i think everybody ought to write their only fine directives and say what they want and then talk to their family, talk to their kids and spouse, talk to anybody around them brothers and sisters and
make it clear how you would like to go if you had -- if you had the choice. we don't always have the choice but an awful lot of money gets spent in health care on issues where people don't want it. they really wanted to be allowed to die or go. they are ready religiously or ready to go and they would like to go, the medical profession's goal is to keep you alive as long as possible. that's the mission of a doctor and that's the mission of a nurse and hospital. you have these two things colliding of the mission of the health care profession and what a person wants. so you have to be pretty strong and thought through what you want, otherwise, doctors will -- we've seen these cases where people have been on machines and these extensions of life, which of course that's a very tough
decision to make. you want to have the first shot at what's going to happen. >> jim mcdermott our guest. if you want to ask questions, 202-748-8001 for republicans, 748-8000 for democrats and 8002 for independents. chris christie making the stops. this is reported by the "star ledger" taking on issues of medicare but adds social security to the mix. here's what he said he would call for an income cap for benefits of social security and propose reducing payments for people making more than $800,000 and additional income and eliminating the benefits -- $80,000 and eliminating the benefits all together for people making more than $200,000 a year. what do you think about that approach? >> everybody pays into social security and everybody ought to be able to draw the benefits out
in my view because you have -- a very small number of people at the top don't need the money. but it is the main source of income for senior citizens in this country. when you start saying if you have more than 80,000 or more than 30000 or whatever, it's easy to then slide it down to the point where you get rid of social security all together. these people who are talking like that are people who want to get rid of social security or get the money over into wall street. the worst thing that can happen to you is somebody took away your social security and said, here's your money but you've got to co-invest in wall street. you wouldn't know what to -- most would lose half of it. social security is a known amount of money. you get a letter every year that says, this is what your benefit is going to be when you're 65. you know it's going to be there. and it's going to be there.
but if you had had out in the market, the market goes up and goes down. terrible destructive thing that happened in 2007, lots of people lost huge amounts of money. you don't want your security in that kind of thing and that's what christie is talking about. he's talking about moving the money to wall street. that's a bad idea. >> our guest with us, the first call comes from tuscaloosa. larry. go ahead. >> caller: good morning how are you doing? good morning to you. i have a question here -- a comment. i would like to know from him if he knows whether or not the republicans and maybe some of the democrats want to establish a marketplace for indij ent people who don't have income, health insurance, i would like to know from him whether they are going to establish one or if
they have tried to establish one for indigent people folks who don't have income. i think it's a shame and disgrace for state by state 37, 36 of them who opt out of medicaid and left millions and millions of people without health insurance. most of these states are republicans. i don't understand that. i would like to know from him do you know -- have you or anyone would like to establish a marketplace for those who are indigent, i think the republicans are establishing one who make a certain amount of money. thank you forgiving me an opportunity to say it. >> you raise a very important issue. one of the decisions congress made years ago in 1964 was that medicaid, that is money for
people with less -- health care for people with less money would be administered by the states, each state could design their own program. some states have been very generous i happen to come from a very generalous new york and california -- others have been inhumane i think to their citizens. and one of my concerns always has been that medicaid ought to be a national program where we say everybody in the united states ought to have the same set of benefits. it shouldn't make any difference what state you live in. if you live in alabama or live in washington state, you'll get way different treatment in the medicaid program. and that's not fair. in this country we're all americans and we're all one and we ought to be treated the same. >> i think ultimately it will have to be taken over by congress because there are a number of states where they
refuse to expand the medicaid coverage. president obama gave expansion of medicaid and said we'll pay for it. we'll pay 100% and governors still said we don't want to give it. they are essentially saying to the poor people in their states, no, we don't want it. you can look at florida and look at texas and look at alabama. there's a whole bunch of places where governors have simply refused to take care of the people in their states. i think it's wrong. >> independent line from florida. good morning. >> caller: hello, good morning pedro, hello representative mcdermott. last time i spoke to you is before christmas. and it was regarding the medicare and ways and means. my question to you is number one, will we ever see some kind of exchanges so that we can get
a agreement with some of the states if you wanted to get care in other states and you were on medicare or medicaid or combination or just medicare, will we ever see that rectified to ways and means? last time i talked with you, you talked about cuba and now we have cuba, off the terrorist list. can we get medicare to take care of us in cuba? i.e. michael moore? >> my view is i've always been someone who believes in a single payer system. everybody in the united states ought to be in the same system. not the doctors and -- you don't have to control all of that but everybody ought to be guaranteed the same set of benefits, no matter where they live or how much money they have or anything else. no difference should be for any american on this issue.
when you allow insurance companies and when you allow state governments, when you allow all of these other people to manipulate or fiddle with the benefit package, you're going to get the problems that you're seeing today. i think ultimately, the congress on the basis of fairness is going to have to come back and make medicare a program that is at the federal level. that's why medicare which is for old people, what's done at the federal level. we wanted ever seen yor citizen to have the same benefit no matter where they lived. they lived in maine or florida or california or illinois or arkansas, they get the same set of benefits. that ought to be true for everybody in the country. >> house budget takes a block grant approach to things like medicaid. what do you make of that approach? >> i oppose it because we already know what states do.
and we know some states are generous and some states aren't. i believe everybody -- i don't care which state you live in you ought to have the same access to health care and that's not true today in this country. it's not -- the block grant simply says to the governor here's the money do what you want with it. it doesn't say it has to be used for a certain kind of health care plan. it can be used for roads or schools or whatever problems he may have or she may have, because you have seen money used in mississippi from the medicaid budget being used for schools. it's just simply not -- not a good way to distribute money. you ought to put it for the health care budget. >> sorry representative jim mcdermott joining us democrat from washington. jim is on our phones. go ahead. >> caller: good morning, i'm
here in florida as a medicare patient -- not medicare patient but the thing i see here in florida, i think florida alone will bankrupt medicare. they spend way too much time testing and testing over again. tests that were not done by doctors i know in new york where i used to live. and there seems to be a relationship here between the testing and the hospitals and bonus payments made to the doctors later on in the year. i swear medicare is going to go broke if this continues. and if people realize how much they paid into medicare over the years and how soon it will all be gone after a few operations, they may think differently about what their doctor asked them to do or especially down here in florida. it's scary. thank you. >> what you're pointing out is what we were trying to do with the sustained growth rate, we
paid doctors on the basis of how much they did. so if they did two tests they got certain amount of money. if they did four tests twice as many money. if they did ten tests five times as much money. that was the problem that we were trying to fix with the sgr. we said you can only grow so much and if you grow more than that, we're going to cut you. well, it's hard to make that decision because then you're saying to the doctor, you did tests you didn't need to do. what we're now looking in the alternative methods of payment is a way to get doctors or to get doctors paid on the basis of quality, not on quantity. so then the question comes well how do they make quality of your life better? is giving you three or four or five more tests going to improve the quality of your life? if it isn't, don't do it.
that's what's going to happen in this new payment system. it's going to be a gradual slow evolution but that's the directs we're going because we want to play for value not for volume. >> mike from michigan you're up next. >> caller: medicare and medicaid were the first government programs that began the third party payment system for health services. and then the hmo act in 1973 followed and cadillac union health care plans followed and all sorts of government intervention followed that basically insulate the people from the cost of their own health care. i'm wondering this is supply and demand 101, when someone else pays for your car, for example, you're going to want to buy two cars instead of one.
so i'd like to know how the congressman thinks the government should address this problem. then i have a second question if you can fit that in. >> go ahead. >> where in the constitution does the congressman find the power for the federal government to pay for and regulate health care? >> well, i think generally the answer to the second -- >> we will leave this discussion at this point to go live now to the heritage foundation for conversation with florida republican senator and official 2016 candidate marco rubio and mike lee from utah as they discuss tax policy. >> the reason is when they both took on their campaigns to run for the united states senate almost no one in washington wanted them here. which means they are our kind of folks and i think they have not disappointed.
>> it's good for principle, friends of freedom and heritage and personal friends as well. mike and marco thank you both for being here. a little bit about mike lee, mike is a byu law school graduate. he clerked for a number of people including justice alito. he is a leader in the senate and serves on the judiciary committee and number of subcommittees but perhaps the most important role is chairman of the senate committee. when i was there, you get blamed for almost everything that goes on that folks don't like or like when you're chairman. you have to stand up against everything that goes through that needs to be stopped and mike, we really appreciate you doing that. mike has recently come out with a new book, not his first but it's about our lost constitution an excellent read for those who want to really understand what it is we're losing and what we
need to restore here in america. thank you for being here today. senator marco rubio, really has the american dream, been quiet recently, haven't heard much from him. that's why he's here today with us. he has been a public servient for many years in florida, set an example as a state rep and became majority leader and very early age he was speaker of the house in florida and again, when he set about to run for the senate, just as mike, it was a david and goliath quest where no one saw it was possible. but what we saw is the american people in florida and utah and everywhere recognized people willing to stand up for principle. marco recently authored a book american dreams restoring economic opportunity for everyone, which we like at heritage. our theme for the next couple of
years is opportunity for everyone. favoritism for none. we'll continue to talk about that. they are here to talk about a tax plan today. and i found when i was in the house and senate, that a lot of candidates and politicians talked about the need for tax reform and tax simplyifyiation but very few sign on to someone else's plan. that's because once you put the specifics out there, people can misuse them and can twist them and they can use them against you in the next election. it takes a particular kind of vision and courage for folks in elected office particularly in the senate, to actually get the conversation started with a tax plan with a lot of good components to it that can help america begin to see what this can do to our economy and jobs create in america if we fix our tax system to make us competitive with the rest of the world. two great friends thank you so
much for being here. i'll let senator lee start us off today. [ applause ] >> thank you very much for that kind introduction, we still miss you in the senate but it's good to have you right across the street. we developed a tax reform plan that is pro growth and pro family. it is designed to facilitate economic growth, the kind that will help american families, poor and middle class in particular. also help get rid of distortions within our tax code. and some of the complex tri, that is itself a massive subsidy and massive industrial complex that you can find in and around washington, d.c. as arthur brooks recently said, complexity is itself a subsidy. it's a subsidy for some of the wrong kinds of things.
our current tax code is very complex and tends to punish investment, hard work savings and marriage, and having a family. yes, our tax code, actively punishes people for getting married or having children and doing all kinds of other things that we generally regard as good and should not be punishing through our tax code and otherwise. so on the individual side, we've come up with a two-rate system going from seven rates down to two rates is not easy but we think it's essential for tax code simplyification and achieving new system we want. under this new framework, the overwhelming majority of all americans, about 80%, would pay under one -- essentially flat rate of 15%. subject to two deductions. and all others will pay at a marginal rate of 35%.
these rates begin the higher rate begins at $75,000 for a sipgle filer or $150 for a married couple filing jointly. on the individual side we've added a child tax credit, a new tax credit of $2500 per child per year. this is there to get rid of the parent tax penalty. we're all familiar with the marriage tax penalty, that is a somewhat obvious feature within our code and very well known one. a much more subtle and less well known feature of our tax code is the parent tax penalty. the dynamic through which the federal tax system operating in tandem with our senior entitlement programs, social security and medicare, effectively tax american parents twice. once as people paid their taxes both on the individual side and on the payroll side and again as they incur the substantial costs of raising children.
according to one -- i believe low ball u.s. department of agriculture study it takes $300,000 to raise a child to maturity. it doesn't take into account certain things it should but let's assume $300,000 is an average cost that we can live with. when you look at two hypothetical couples, you can see how this parent tax penalty hits america's moms and dads. imagine couple a and b. they have the same income patterns and have the same charitable contributions and mortgage interest payment patterns. imagine everything about them economically is about the same with one exception. couple a has four children and couple b chooses to remain childless. well raising their children couple a will incur on average $1.2 million in child rearing expenses. and couple b will not incur that. couple a in incurring that $1.2 million expense in raising their children is shoring up social
security and medicare, which are funded on a pay as you go basis. today's workers from retoday's retirees and it's today's children that will fund today's workers when they become retirees down the road. we believe this $2500 per child tax credit is an important step towards eliminating the tax inequity, the unfairness. on the corporate side, we reduced the rate down to 25% when we create a single layer of taxation. and we do this in a way that we believe will promote economic growth and we end the double taxation of corporate earnings by getting rid of taxation on dividends and also on capital gains. these are the basic highlights and i'll turn the time over to my friend and colleague, senator rubio to give some additional explanation and answer some
questions. [ applause ] >> thank you i'll be brief. we want to thank you forgiving us this forum. jim, as he was driving in we drove by the spot where four years ago -- five years ago i held a press conference about my senate campaign. the reason we had to have it there, no one in washington would let us use their facility at the time because i was not supposed to be running or winning but jim demint found us a small sidewalk space and together we held a press conference and we're always grateful and good to see you. thank you to heritage for inviting us here and giving us opportunity and all of the scholarships they do here that serve as a guidepost to the public policy we choose to make. two points i would make and trying to make the 21st century is a dramatically different time from the era i grew up and mike grew up and almost everyone in the room grew up in. we no longer simply operate in a national economy. we're now engaged in international global competition
with dozens of developed economies who are competing with us for innovation and investment and talent, ideas. and we want to make america in the 21st century the single best place in the world to innovate. part of that is the debt, a significant driver of what's made america less competitive and has to do with regulatory systems in the country, but our tax code does too. we've talked about that repeatedly in the past years. we have a tax code for example that has the highest combined corporate tax rate on the planet. we can no longer afford to do that at a time when other nations are going out of their way to become a friendlier environment for investment. it shouldn't surprise us to open up the newspaper and see another iconic american company making decisions they need to make in order to be in a friendlier environment. we've taken steps in this proposal to be pro growth. we want our economy to be dynamic and vibrant. the sing the best place in the
world to create job and the more you innovation and invest into the american economy, the lower your tax burden will be. that was the purpose of our pro-growth approach to this matter. we honestly believe, if we can create an environment where america can compete globally with anyone, with how the standpoint of america treats activity. we believe the american people would do what they always have done, create millions of jobs and better paying jobs, which is critical because of the second point we want to emphasize. the could have of living. there are millions who have the same job he this ten years ago. but ten years ago, 15 years ago, they still had money left over to save for retirement and save for their children's college expense. you name it. now the same people with the same job are often living paycheck to paycheck. literally one unforeseen expense from disaster. if the refrigerator breaks or engine blows out they have no
idea where to get the money to pay for it. that is a real problem for our country. everything costs more. we have new expenses we didn't used to have and paychecks haven't kept pace. part of solving that is having a vibrant and robust economy that creates better paying jobs. so that people aren't making $16 an hour but making 30 or $32 an hour. we need better paying jobs. we learned about the disruptions of the new sencentury, it's changed a lot of the way things ugsed to operate but also created extraordinary opportunities. we have a chance to replace the jobs we've lost and jobs that paychecks are stagnant in with better paying jobs that provide a higher quality of life and more opportunity for advancement and better pay. the second aspect of is louing people to keep more of what they earn. this is problematic for working families trying to raise children. senator lee has done a good job
of explaining the cost associated of raising a family and the contribution that makes to america's future. these are america's future taxpayers and it is important for families in the 21st century to keep more of their money to apply that not just to the cost of today but to the opportunities they want to give their children tomorrow. here's another dynamic that's often lost in the mix. there are hundreds and thousands if not millions of companies in america that pay their taxes on their personal rate. if you're someone who started a business out of the spare bedroom of your home, not only are you probable i doing so in violation of the zoning code but you are also probably paying a tax rate significantly higher than your larger competitors. you're watch they call a pass through and pay business taxes on your personal rate. one of the things we do is create equity between an s corporation -- not always small business but invariably most small businesses are s corporations. we decree alt real parodi
between them and the 25% tax code and that means a lot to millions out there operating a business out of their home or out of a one desk office or maybe have two or three employees. i would venture to guess that today if not all of you in the room today have had some experience at some point with the past entities as to the way you do business and employ people and employ yourself. we can create -- we can get more into the details but here's the bottom line. it's good to go back in history and learn a little bit. it's interesting in the beginning of the 19th century america was still largely an undeveloped economy. britain was the single largest in the world and united states was still largely an agrar yan society. we want to fully capitalize from the opportunities of the new age. less than 100 years later america was the most powerful economic force in the world.
that generation of americans not just confronted the challenges of industrialization, but capitalized on its opportunities. i would argue to you that we're now living through a period of transition as rapid as dynamic and as impactful and perhaps more disruptive than the industrial revolution was. you see that every single day every time you go to the checkout counter of a grocery store, you're swiping your own bar code on an automated machine, it reminds you that a job has been replaced by a machine. but it should also remind you that someone had to install that machine. someone had to design it and build it and someone has to maintain it and someone needs to work to replace that machine. we need to be the economy that does those things and creates opportunities for the cashiers to become the engineers. we need to be the economy that allows the receptionist at a law office making $12 hour to become the para legal making 60000, $70,000 a year.
a lot is creating the dynamic economy where the jobs are created. we want to be the place where they build these machines and where they design that software. we want to be the place where we employ the technicians that repair and be the place with the innovators live working on the new 21st century machine that will replace the one in place. we have to have a tax code along with a regulatory code and other things as well. we have to have a tax code that makes us globally competitive and that's what we endeavor to do. this is a working product, tgs the starting point of what i hope will be an important engagement. to do something as big as tax reform cannot be a take it or leave it proposition. there are a lot of good suggestions and we're listening to a lot of them and always look for ways to improve our plan. but our hope is from it we can arrive at a consensus in america what a 21st century tax code looks like. thank you. [ applause ]
>> my name is david burke with the heritage foundation. we have time for questions and answers but first i'd like to say the heritage foundation is a 50 c 3 public policy organization, don't endorse candidates or get involved in political campaigns. i would ask you limit your questions to public poll, preferably to subject matter of this event tax policy. with that, who would like to ask a question? this gentleman. if you would, please wait for the mike and state your name and institutional affiliation. >> joel mannedleman, an attorney here in washington. in the introduction to your proposal, you listed only two things that you would allow to be deducted from personal income taxes, charitable institutions and mortgages. was leaving out deductions for
state and local property taxes just -- do you actually intend to abolish that deduction that would hurt families enormously, especially in places like new york and new jersey, california where state and local property taxes and income taxes are cat stroskically high now? >> property taxes and we've tried to reform in a state with sales tax as well. if you look at the tax code in its totality nine out of ten americans, overwhelming majority in its total will save more money under this plan than saving today on the tax code. again, any sort of effort to simplify our tax code and to limit it will require us to look at different exemptions and remove them in exchange for lowering rates on people. that's just on the tax code side. it would lower the ultimate -- in essence what you're concerned about is that people now are able to write off the
expenses of their property sales tax on the tax code off the tax liability they have under this plan they would save as much if not more than they are saving under that existing system and that's without taking into account the economic growth aspect which would create increases in take home pay for a large number of americans millions of americans. >> there is a problem with excessive taxation at the state and local level and in addition to the federal level. we think this is a way of putting attention where it ought to be with the decision maker at the state and local level. >> next question. >> i'm kelsi snell from politico. do you have reaction to the score that the taxpayers receive? they said the plan would lose $414 billion a year. and on a dynamic basis over the first ten years it would lose, $1.7 trillion.
do you have any concern what that would do to the economy? >> well, first of all, i think when you look at the economic growth this would prompt and the fact this is leveling the playing field and removing disincentives that we have for business formation and family formation, this will help the economy. and i don't think the american people are likely to complain overwhelmingly about having their tax burden reduced. and we did design it with the understanding that it would amount to a cut, that it would be somewhat revenue negative and we think this is good, this is good for the economy. this will stimulate economic growth over time. i think it will more than pay for itself. anything that enhances freedom and that is pro family and pro growth is going to be good for our country and good for our economy. >> that's a great question, glad you asked that. looking for the opportunity to answer it.
a couple of points, it's not fair to score a pro-growth tax plan on a static model. because you're taking away from it its most important element it will grow the economy. here's my second point, we have a serious debt problem in america. it's one we can either solely tax our way out of -- we cannot tax our way out. if you confiscated 100% of the money made by millionaires you barely make a dent in the long term debt. you have to do the combination of two things, only way to bring the debt under control, you have to do two things and do them simultaneously, uch to grow your economy so it is larger than the share of debt that represents it and second you have to hold the line on spending. that's why this plan is the growth side of the equation. this plan is designed to create the dynamic growth that we need not just to empower and fuel the american economy, but to create the revenue for american government. revenue by creating more taxpayers, not more taxes. we still have to deal with the
debt problem if this was a tax increase plan, you would still have a problem with the debt because you can't realistically raise rates to any level to deal with the debt. we still have to do -- still have to deal with long term drivers of long-term debt medicare and social security and currently medicare that are currently structured unsustainable. that is a whole separate conversation but important one to have because people in my generation and mike lee's generation will have to accept that our medicare and social security is going to look different than our parents. my mother is on medicare and social security. i don't want to see her harm. but here's the truth, if we stay doing what we're doing now the math is very simple these programs bankrupt themselves. we're going to have to have in this country an effort to reform those programs so that they exist without changes for our parents and grandparents and when i retire and mike lee retires and many people in this room retire we still have the best medicare and social security system in the world but it will look different than our parents but actually be sustainable for our children and grandchildren as well.
you have to do both. [ applause ] >> thanks. >> my name is jamie witt, i thank senator rubio and thank senator lee. i have trouble with the flat rate of tax that senator lee talk about for 15% for everyone with income up to 75,000 and couple up to 150,000 and after that it would be 35% you said? so that is exactly where my trouble is because i believe 90% of our middle class income falls right there in 150 to 200. would you be taxing 99% from middle class and 35% when the 1% was still pay 10% tax? how does that make the difference? i also have trouble with senator
rubio's talk about the health care system. i believe the affordable care act is the answer to the health care spending right now. and i believe plus with many other programs especially on the research and development what innovations in job competition but global america he is spshlly with china and other rising powers. why would we cut -- and attack the affordable care act? why if we promote that current growth trend we would cut the deficit, cut the deficit more than 50% in ten years? thank you. >> okay, first of all, thank you for your question. this was one of the things that we took into account when we started developing this plan. we started first and foremost from the standpoint we did not want a tax plan that would produce a tax increase for the middle class. we wanted something that would help the middle class and help
grow and expand it. we've got data that can show you this and charts but look, almost no one in the middle class would see their tax bill increase. those that -- those very few that did would see only a slight adjustment there but very slight. this is not a middle tax class hike. this is a middle class tax cut. and would be very pro growth and we're attempting to level the playing field here. >> first of all, as i said a plan we believe and seeing the evidence it would cut taxes over 90% of americans, some quite significantly. it's impossible to do that and raise taxes on middle class since 90% of americans are not in the top bracket. the second thing you have to understand, the rates alone are not the basis of your tax liability. it also includes the deduction and personal deduction and deductions that we allow that are quite generous. you have to take into account we're removing the marriage penalty and increasing the per
child tax credit. all sorts of other things that for example, the people at the 15% bracket would pay less than they are paying now at the 10% tax bracket because of things built in. then you talked about the health care law. it's not the topic of this conversation per se but i think we have to understand it's impact on the tax code and individual americans. it is true there are people in this country that have signed up and receiving obama care through some form or system. depending on where they live and how they apply for it. and it's also true many are saddled with extraordinary high deductables and high co-payments and can't see specialists anywhere near where they live. they lost a doctor they once had access to. there are less people willing to enter the health care space. over time the only way to make this cost effective is to reduce spending on innovation in health care because reimbursement rates will be crunched in order to be able to parcel out health care in a way that they find sustainable. that will lead to cuts in both
innovation and medical -- provider networks now available to patients and to top it all off, we're on the verge of having to bail out companies that went into these changes and losing money. i imagine other than that it's working quite well but these are major i am pediments to the future of the veilability of health care for millions of americans. >> one over here. this gentleman. >> thank you, john zan with taiwan rubio you have a lot of fans in taiwan, even for your tax work. >> that means i don't have very much in beijing but that's okay. >> could you tell the people in taiwan why tax reform in america is so important? if you can touch on the taiwan policy -- >> i don't know how i can link the two other than to tell you i think economic growth -- we want
to be a globally dynamic economy again. we understand we're engaged in the global competition, by the way not always a zero sum game. americans benefit from there being millions around the world that can afford to buy the productsmake services we offer. the things that we innovate. we want there to be a growing and vibrant growing middle class. but we also want to be competitive in the global marketplace in terms of the -- there will be high are payer paying jobs created in the 21st century. the question is how many will be created here versus somewhere else. and increasingly there are now dozens of economies around the world that are creating a friendlier environment for investment. they have a better tax system on companies, on innovation. even on the personal side simpler to comply. and then you add to that regulations, fear of long term debt crisis, et cetera. i think it's true for cupping
all countries all over the world pask pliarticularly asian pacific region. >> this gentleman. >> thank you. mirk warren mike warren from the weekly standard. a lot of conservatives consider tax credits to be tax spending and say they prefer tax deductions. your plan obviously takes the view that tax credits are the better way to go. what is the defense to conservatives who might disagree with that? >> it's just wrong. look, this is not -- so those who look at it as a bad thing, try to describe the child tax credit as a subsidy, as a special interest giveaway or something like that. it's not. this is an offset to an existing
penalty to an inequality that exists under the current system. our tax code coupled with the senior entitlement programs produced a parent tax penalty that we're trying to offset. i'm not certain that the child tax credit that we provide completely offsets the penalty. but it's a step in that direction and i wholeheartedly defend it. >> and i believe critics believe in a flatter tax code. that's an attractive argument to make. and there are elements of that embedded in this plan. but i think it's important to understand what the tax system is. one way to you view it -- i'm not saying this is what conservative critics believe, but important to point that out. one view is the government's entitled to 100% of your money, but we'll let you know how much of it you can keep. and the other view is we're entitled to 100% of our money but we understand we have to have a government and we'll let you know how much we're willing to send you. that's the view i adopt the
latter. families raising future american tax payers should not be penalized for having those additional costs. so they will send less money to washington than they otherwise would because they're making an extraordinary contribution to america's future by raising the people that will grow up one day, in-though straight invest and fund the sbinlgtsentitlement programs. >> next. yes, ma'am. >> liberty times in taiwan. i think the two senators proposed the tax reform here today is because you want to get american house in order and many of your alliance in asia actually pretty worried that a declining u.s. and raising china in that area. i just wonder do you have a view about -- do you have a confidence about u.s. presence
in asia and especially friends in taiwan are worried that u.s. may not able to maintain stability in cross rate with rising china and growing military muscle. do you have any comments about that? >> my first comment is america is not in decline, we just happen to have a period of time when we have a bad president, but we'll overcome that. my second point that i would make is our alliances in the asia pacific region are critical. i'm hopeful china's rise will not just be peaceful but fair to its people. china has a challenge on its hand. they will have to decide how to meet their people's expectations. with a political crackdown or economic opening? and right now it looks like they're leaning in the direction of a political crackdown. and that's apparent given all the other challenges that they now face internally as a nation. they have a very serious democratic drop, environmental degradation, serious political
issues long term in meeting the expectations of their people to be able to participate in the global conversation the way free citizens do. and part of danger is that they would turn toward national civil as you see in the construction of basically building islands. so part of our response to asia is clearly about our defense alliances, but part of it is our economic links to the region, as well. and i think we have a strong interest and increasing trade commerce and interaction with our allies in japan and south korea korea, philippine, taiwan. america has to have a strong robust economy. so my message to our allies is the american people are ready to enter new american century. they just need leadership in washington that gives them the chance do it. and then america will be stronger than its he ever been and our alliance will be firmer and more stable than it's ever
been. >> fox news channel. you've already heard some of the criticism that conservatives are saying about tax cuts not going deep enough for the top bracket among other things. i wanted to get your specific reaction to that and also the "wall street journal" editorial referring on monday as the leading gop proponent that the-46 i want to get the quote right, leading gop proponent of the idea that the reagan tax cut agenda is a political dead end and that the party must now redistribute revenue directly to middle class families. your reaction. >> i'll put them down as an undecided. i don't think any conservatives have any quarrel on what we've done on the pro-growth side. it all comes down to the child tax credit and i would say two things about that. if we eliminated this additional child tax credit the most you
would get maybe, maybe, 2% reduction in the top rate if you wanted to pay for it in the way that we're asking for. i think our argument is the one that senator lee made this is not a redistribution. the money does not belong to the government in the first place. there a penalty for those raising chain. senator lee described two identical family one raising four children, one that has made a decision not to have any children. both legitimate choices. you about but the family raising four children have additional costs and the tax code doesn't recognize that. so you you can't redistribute what already belongs to you. and this is money these families are eshing. and i'm looking forward to a vibrant debate. i'm glad the conservative movement has space for this debate. i'm a huge proponent of everything president reagan did. he was a historic figure and
quite frankly my favorite president certainly of the 20th century. the 21st century has significant differences. tax rates are different globalization is real. and we need it say globally competitive and we need to recognize that in the 21th century, families face challenges that weren't there. my family made it as a bartender and maid. it would be did ticketfficult to do that in the 21th century. a great time, the last time the miami dolphins were in the super bowl were in the 19 taitz so i love the '80s. but we're in the 21st century. and it's about common sense and reform. and this is a common sense reform about the realities of a new era. and conservative at its core it works better in the 21th century
than it did in the 20th even. >> this is not a turn away from ronald reagan. this is emulating ronald reagan. conservatism involves applying conservative solutions, approaches to meet the challenges of our time. and this is the next stage of the implementation of ronald reagan's vision with a fairer, simple leverr tax code. >> next question. yes. >> i think there is one point you're missing that would help you you promote the child tax credit. with the exception of immigration, our nation is losing population. we're under the replacement rate
and we shouldn't be shy about helping families to have children because of the reasons you said. we need people paying taxes and supporting the programs that are going eventually bankrupt. i haven't heard you talk about the positive way that we should be supporting child rearing not for religious reason, but because the country needs population to support itself. >> i certainly would agree that family formation marriage and having children is not an activity we ought to be discouraging. but the idea behind this is not to encourage it, not the to subsidize it. it is simply to get rid of a penalty, to level the playing field. the playing field is not level right now with regard to american moms and dads. and that's what this is doing. i'm personally not comfortable with describing that as an encouragement, as a promotion